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One
of the challenges in making a strategic decision to adopt
Build-to-Order (BTO) operating practices is that there appears
to be no need, since many manufacturers are realizing some
gains through incremental continuous improvement of their
existing JIT operating method. For the most part, that's
correct if your market place is fairly stable and you enjoy
significant market share.
However,
in volatile, highly competitive markets, anything short of an
all encompassing shift to rapid Build-to-Order produces only
incremental improvements that will not be enough to satisfy
customers' demands for very long. Supply chains increasingly
have to dramatically reduce their costs to survive. Making
necessary cost reductions of 30% or more will force the
challenge of such basic manufacturing dogma as:
1.
Efficient mass production
2. Standardized and predictable
shop floor control
3. An insistence by some manufacturers
that they are in the business of "making" instead of
"branding".
These
long held practices caused resistance to the Toyota Production
System's message, at first, and later in many cases diluted it
to something nearly unrecognizable from its original intent.
Unfortunately both efficient mass production and standardized,
predictable shop floor control are by-products of a successful
Lean focus.
The
original concept of the Toyota Production System was to have
the ability to produce one as efficiently as producing 1000.
It advocated a pull system whereby the customer "pulled"
his/her product from the OEM. However, the automotive industry
is a push industry, meaning cars are built and "pushed"
onto dealers' lots. Lean got translated as "efficient
capacity utilization" and consequently $80 billion of
inventory sit on the dealers' lots for an average of nearly 80
days.
Those
of us who criticize the emphasis on lean for diluting the
ability to make the substantial bottom-line improvements are
ourselves sometimes criticized for our emphasis on BTO. To set
the record straight, BTO and lean coexist very nicely as long
as being lean doesn't compromise the company's ability to be
flexible. The problem is that many manufacturers have made
flexibility tradeoffs to maintain their ability to produce in
an efficient manner, much as they learned on the knee of Henry
Ford.
Perhaps
the most insidious of these tradeoffs is efficient mass
production. You see, manufacturers learned about mass
production at the same time they learned about economies of
scale. If you can spread large investments over large
quantities produced, the investment per unit goes down.
There's nothing wrong with the concept of economies of scale
either unless it's misapplied.
While
economies of scale say that large quantities of production are
required to pay for large investments, it doesn't necessarily
hold that large investments are required. Many manufacturers
have over invested in capacity because of the operating system
they use. Using the automotive industry as an example, there's
currently almost twice as much capacity as is necessary to
meet demand. Still, OEMs continue to pump out cars to utilize
capacity efficiently and push them to the dealers while
needing to provide rebates and other incentives worth over $30
billion to induce consumers to buy them.
Another
challenge is whether the customer will pay more for a custom
built product. No one can say for certain. The most likely
answer is that they won't. But true customization adds a level
of differentiation that is currently met most often by lower
and lower prices. Customers, when faced with two choices of
equal price, will select the one that meets their expectations
the best. Clearly, if a company provides a consumer what
he/she wants, at the same price as a competitor but at a lower
cost to produce, they will sell more and make more money. BTO
provides the opportunity for manufacturers to reduce operating
costs, inventory costs, and plant capacity costs.
Two
friends, Bill and Bob, are working on a high-rise construction
site; Bill on the 20th floor, Bob on the 5th. Bill slips and
falls. Bob seeing his friend but being unable to grab him can
only shout, "Bill, you O.K?" Bill yells out, "So
far!" as he zooms past. Many American manufacturers, who
so far are following the same operating strategy they've used
for the last 20 years or so, will find manufacturing
dramatically different in the near future and BTO could
represent a softer landing alternative for them than Bill will
find.
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